Jana Small Finance Bank Limited (NSE:JSFB)

Q3 24/25

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Jan 21, 2025

Summary

Q3 credit cost declined and management said peak stress had passed, while accelerated provisioning kept net NPA at 0.91%. Secured lending and guarantees are expanding as the bank targets Q4 stabilization in unsecured lending and progress toward universal-bank eligibility.

Ladies and gentlemen, good day and welcome to Jana Small Finance Bank Q3 and 9 months FY 2025 earnings conference call hosted by Investec Capital Services India Private Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing the star then zero on your touchtone phone. I now hand the conference over to Mr. Nidhesh Jain from Investec. Thank you, and over to you, sir. Thank you, Steve. Good afternoon, everyone. Welcome to Q3 FY 2025 earnings conference call of Jana Small Finance Bank. To discuss the financial performance of Jana Small Finance Bank and to address your queries, we have the top management team from Jana Small Finance Bank. The management team is presented by Mr. Ajay Kanwal, Managing Director and Chief Executive Officer. I would now like to hand over the call to Mr. Ajay Kanwal for his opening comments. Over to you, sir. Nidhesh, thank you very much and welcome everyone. Like last time, I would focus on the investor presentation we have uploaded, and I will be referring to the pages of the investor presentation when I speak. Let me start by using slide number 3. We had a very strong quarter 3, where both gross NPA and net NPA declined, and I would really like us to go through these specific numbers with me, which is in the box. First, regulatory provision in Q3 has come down to INR 81 crores versus INR 149 crores of Q2. If investors, analysts who are on this call remember what I said last time, I did say that Q2 has seen the peak of our challenges. This drop in regulatory provision, 149 to 81, is from that purpose. Second, we are providing extra provision so that our net NPA remains below 1, and that is primarily due to our need to apply for a universal bank in May this year. As you all know, to apply for a universal bank, you have to meet conditions of gross NPA below 3, net NPA below 1 for 2 consecutive years. We met it last year, and to make sure that we meet it this year, we keep providing the accelerated provision. In quarter 3, we have done that for INR 93 crores. However, if you see the net NPA has fallen to 0.91% versus 0.9% of Q2. Our PBT post, the regulatory and actual provision is INR 105 crores, which of course is higher than Q2 of 88. If you add back our deferred tax asset, which is lower in Q3 from Q2, our PAT is at INR 111 crores and INR 97 crores versus INR 97 crores of Q2. For people who would like to calculate what would have happened to PAT or ROA or ROE if there was no accelerated provision done by the bank, I have also given those numbers. Our adjusted PAT, just adding back accelerated provision and taking away DTA would have been INR 204 crores. Our ROA would be 2.4%, and ROE would be 20.7%. Very important that we understand accelerated provision, the need for us to do it, and of course, both gross NPA and net NPA is dropping. I will show you credit cost in detail on the next page. On the very high level, it has been a fabulous quarter with a drop in regulatory provision, with an increase in PBT. And if you go down to the balance sheet, we have seen a solid growth in secured loans, 36% year-on-year, and our secured book stands at 68% from 60% in the March financial year ending. Our unsecured book has declined 7% year-on-year given stress in the MFI business. From last quarter, we have initiated CGTMSE for the micro-enterprises who are in business and for the rest of the MFI book, CGFMU, and I will share with you how much we already put into the guarantee program. Our deposits continue to grow well, and our LCR is at 279%. Our book value has improved to INR 380 per share, which I thought I will share so that we are very specific about it. Very important to remember from the first page, it has been a declining gross NPA, net NPA, and if one were to remove the actual provision taken by the bank, PAT would be at INR 204 crores. Page number 4 of the presentation deck is our credit quality. Sir, credit cost Q1 INR 196, Q2 INR 210, Q3 down to INR 174. In INR 174, actual provision itself is INR 93. So one is actual credit cost has dropped. If I take away actual provisioning and recoveries, then the net credit cost is just INR 44 crores. Again, I would like to repeat for folks who are attending our analyst calls regularly. We have seen a drop in our credit cost in Q3 and the peak challenge is behind us. Then I have also given because many of us want to know what happened to the gross NPA during the period and so what to anticipate. Here we are on the opening gross NPA. We open at INR 755 crores. We added about INR 437 crores and we had recoveries and write-up of INR 434. We are flattish on closing gross NPA. Now, what is the portion of gross NPA in MNBE which is secured and unsecured? We certainly will cover before I go into Q&A. The main thing to remember from here is a drop in credit cost in absolute terms, and if you take away the asset provisioning, it is even much lower. Our PCR continues to be very healthy at 66.94%. And when I say very healthy, because 66.94% is assuming or rather given a secured book of 68%. The other quick points I want to cover, which are Q3 developments, which is now slide number 5. We have taken roughly CGTMSE which covers 13.3% of our portfolio, and by March 2025, we will hope to reach about 25%-30% of portfolio under both the guarantee programs. I want to emphasize that us taking guarantee program is just to make sure that anything unforeseen in the future does not shake us from our credit cost. We are conservative in how we lend, much more stringent than the MFIN criteria. We do believe our book is performing much better than the industry. I did want to make sure that we were extra careful given the environment. The second thing that I have pointed out here is the cost-to-income ratio. For all the folks, I have actually done an OPEX to total business, which is what is my asset book and deposit book. I have divided that by total cost, and there you can see it is 0.9%, 0.92%, 0.91% quarter. Our costs are not going up. It is in line with the AUM growth. The challenge being the NIM is dropping because unsecured book is dropping, and that is stressing the cost income. The moment we stabilize our unsecured MFI book, which we expect to do in quarter four, which is it doesn't drop any further, just remains where it is or goes positive, our cost income will start getting better. You should expect cost income to start getting better. There is nothing extraordinary on cost that is happening. It is just a change of mix between secured and unsecured, and we have seen an unexpected steep decline in unsecured given the environment. I just want to give comfort to everyone that we have our eyes focused on cost, and this is just a mathematical thing which will get aligned as the MFI book stops de-growing and of course will get even better as it starts growing. Finally, I want to show CASA. We took a step on 3rd of October of cutting our CASA pricing because we did feel that there were a lot of expensive CASA coming in, which to our mind was not the best CASA to retain. Having done that, I have shared with you what was our cost of CASA as of September end. It was 4.8%. It has now fallen to 4.44% in a quarter alone, purely because we have taken away the upper end of CASA. The result is that our CASA ratio is down to 18.43%, which it dropped on 3rd of October, a lot of the expensive CASA which migrated to other banks. We could recover from retail bank, from retail CASA, but not all of it. We will certainly make CASA positive as we go into quarter four. Our LCR continues to be very healthy. We are very liquid, so there are no challenges around that. The big takeaway from here is we are at 68% secured. We are on trajectory to become 80% secured. The 20% in unsecured, we as a bank would like to put that under guarantee programs so that there is no event risk that we will run once we do that. Secondly, cost income is showing an increase not because of some extraordinary cost, primarily a drop in the MFI. Third is we have aligned our CASA rates. We do think that it may be a short-term hit, but certainly the healthiest thing to do for CASA growth. I will now move on to slide number 9. Very important to see our asset book and see how the asset book is really growing in the areas we want them to grow. So affordable housing for 9 months with an average ticket size of INR 11.9 lakhs has grown at 25%. Our Micro LAP, which is average ticket size of INR 6.4 lakhs, has grown by 14.3%. Our MSME loans has grown 17.4%, our by 73.9%. Our gold loans at 104.9%. So all the core businesses on secured are really doing in a very healthy business in a very healthy rate. We continue to expect to see a strong growth in secured in Q4 too. Unsecured, as you can see, as in the 9 months has de-grown by 11%. I do expect that Q4 we should at least at the minimum hold back any further decline. That is not for any other reason. We do believe that our focus on our business, the criteria we have applied, gives us comfort in making sure that we hold the book at this point and start growing it because the new book obviously is doing very well. I want to now move on very swiftly to slide number 14, which will show you our Anchor Bank. I just want to make a very important point. We've always said that the future of us is making sure that the aspirational customer, the middle of India, gets a home bank, and we want to be their Anchor Bank. For people following our Anchor Bank slide, which is there in every quarter, you will see that gold loan penetration in home loan and LAP customers has increased from 1.8 last quarter to 2%. Our TW penetration, which was at 19, has gone to 20. Our pre-approved business loan, which was at 15, has gone to 16.5. Doing this is super important for us because this is where we get operating leverage, this is where we get a competitive moat, and this is where our customers really treat us as a bank. Once we get more and more of these customers, we will get better and better credit quality. That is the reason we put up this slide and we keep focus on it, and I'm glad to present to you that there is real positive change here. I will now move on to the next slide, which is on the deposit side. I want to cover two, three points here. First, our CD ratio is 102 for two reasons. One really is we had a FD/OD growth on the last week, which was unexpected, which has been paid down, which is why if you see the paid on secured assets, there's a big jump in FD/OD growth, which is for this quarter. Otherwise, it could have been around 98% or 99%. Second, we always keep it in the 90s because all of us know that we have refinance line from NHB, SIDBI, and NABARD. We have taken additional INR 730 crores of NHB and SIDBI money, which is 10-year and 5-year money at very good pricing. But we do it because it does help ALM getting long-term rates. So on the liquidity side, few things to remember. LCR at 279, we are very liquid. We do not have a challenge with doing. We are maintaining CD ratio at a slightly elevated level only because we do not want too much cash on the balance sheet, which tends to be a drag. The reason why this happens is purely because we do get refinance lines from NHB, SIDBI, NABARD, which we do think is very healthy from a tenor mismatch angle. Next, I would like to move down to slide number 19. I really want to reaffirm that if you take away accelerated provisioning, you take away DTA, we end up at a 2.3% ROA, which is the true value of the bank. We would certainly be in the 2-plus range once we kind of finish the net NPA less than 1 and gross NPA less than 3. Once that is sorted out, we will be there. Slide number 20 gives you a net NPA breakup between secured, unsecured, and total where you will see that nearly 79% of net NPA is with secured loans. The secured loans have property backing it with an LTV of 46%, so there is not much one should expect in terms of credit cost going forward. I really want to repeat on the credit cost. We had said that in Q2 it will come down in Q3. You have seen the worst, and we certainly have put this behind us. I do not want to give an illusion that it is not hard work. It still is a lot of hard work, and we are very focused on making sure that we continue and persist with that and keep this credit cost at the lowest one as we go along. I have a P&L slide, which is slide number 21. Our PBT of INR 350 crores in this tough environment has been the highest we have ever done. So INR 354 crores PBT is after INR 208 crores of accelerated provisioning, and of course, with the help of INR 24 crores of deferred tax asset. Very important for all of us to know this because there were certain trajectories you may be expecting from us, and rightly so, in terms of profits. I just want to share that we are maintaining that trajectory. It is just that we have to make sure net NPA is still below 1, which is where we are able to accelerate provisioning. The management and the board remain consistent, and everybody is on board as they used to be. With that, I just want to give one or two highlights before I close and open it for Q&A. Number one, credit costs have dropped. If I take away accelerated provisioning, which is required to maintain net NPA below 1%, we are really at the extreme low end of provisioning anticipated. The worst is behind us in Q2 itself, which is what we had signaled, and now you can see the numbers. Our secured book is growing very strongly, and so we should be in the 35% range when the full year finishes on secure growth. We would like to grow our unsecured book in Q4. At the minimum, keep it stable. We are very focused on cost, so we think mathematically the better answers will appear any which way in Q4. NCR remains strong, our deposit growth remains strong, and we are very liquid. With that, thank you so much and happy to take on questions. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press * and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press * and 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Manish from Nirmal Bang. Please go ahead. Yes, sir. Thank you for the opportunity and stable set of performance in a tough macro environment. So congratulations to the team. My question on the microfinance business. In your opinion, where is the stage of the payment industry, number one? Secondly, when you say the Q4 will see some growth or stable and secure book, are you seeing collection trends in the current book is improving? Can you talk about from October, November, December, how the trend of collection? That is the question number one, sir. Manish, thank you. Let me tell you what I think. First, having an industry answer may not be possible anymore. I think whether it's SFBs or it's MFIs, now you will see divergent performances. Two things will decide that. Number one is who has what composition of book, and that becomes very important. Secured book can also be of various natures. Our secured book is largely property-backed, so we should have a different answer. Again, MFI, we have never done lot of growth. If you take our 2018 book to our December 2024 book, our CAGR would have been around 1%. So really you should not see much of a challenge because our book has grown slowly. It's not that there is no challenge, but the amount of challenge would be less. I really don't have a good answer for you saying what is to be accepted by industry. I think you will have to go by the books. Where are we on MFI industry? I must tell you that reaching 99% by the 20th or 22nd of the month is still very hard. We kind of stay at 98.5%, 98.6%. That's collection percentage of B zero I'm talking of. I'm not adding anything else except what is demand in B zero and what is collected in B zero. We still keep fighting till the month-end to reach the 98.5%, 98.6%. I don't think so that is changing in a hurry. Having said that, yes, consistently 98.5%, 98.6%, we can see the new book that we have disbursed through the year is performing well. Whatever we could have seen as challenging, I think most of it has already passed. I do think that we are comfort to now at least keep the book flat, if not grow it, and that is a step we are going to take in Q4. I hope this helps. You see, very importantly, I did say in Q2 that we have seen the peak. We may be probably among X number of players who will probably say that in Q2. Different players will have different depending on what kind of books they have. Understood. The second question to Abhilash. I remember on the end of the quarter four earnings analyst meet, you said the operating expense growth will be 8%-10% for the year. If I look at the nine-month number, it's growth of 19.5%. Given the pressure on the credit cost, how do you see the growth in the OpEx growth versus your guidance range of 8%-10%? The OpEx growth, I think it's in line with the AUM growth. What has happened is, if you see, Ajay covered it also in the slide earlier. The OpEx is growing in line with the AUM. We had given an earlier guidance of 8%-10%. This is that scenario not considering any additional collection cost and additional marketing spend which would have been required during the year. That being said, probably that is the reason there has been a slight blip during the current year. Ajay, you want to add? Sure. Thanks, Ajay. Manish, math is very simple if you take Payzapp over 5 years. We have people in microfinance, about 8,000 of them, but the book is negative for the year for about roughly 11%. If this book would have been positive 5% or 6%, which is what, if there was no stress, that would have been a normal year, then our cost of income would have probably been around 55%. Right? The challenge is we have the people who are doing collections now and not doing any incremental business, which is why you have elevated cost, and rightly so, because we obviously have more collectors than what we anticipated. The collectors are not doing new business, so cost income is getting a bit challenged. I do not think so we are increasing collection capacity anymore. I think we are already having enough and more that we need. You should not see a cost increase. Like I mentioned that if we stabilize the unsecured book in Q4, which means at the same level that is today or it could be even slightly positive, you will see a pushback again on cost income will go down. The reason I put a very specific box is I just want you to know that we are very conscious of it. We feel always very proud of our cost income, and we would like to bring it back to the 55 level because our longer-term aim is to get to the 50% to 53%. Right now, the collection focus is more important to us, which is where we added the bodies. Second, as you know, there has been a bit of attrition across the industry, which does cause a bit of a jump in the people cost and probably a harder push towards collections talent being higher than it normally is in every year. If you add the two up, that will explain why our cost is higher. I would have anticipated this question, and it does bother us, which is why we put up that box, and we certainly would like to see a better cost income as we get into Q4. Last question on the slightly longer-term perspective. You mentioned in the analyst meet that we aim to achieve the secured book of 80%. Our margins keep on declining because of the rise in the secured book and the decline in the MFI book. If I ask you one should model your sustainable ROE given the cost metrics and the pricing of the credit cost and the NIM profile on a sustainable basis. Manish, first is, again, I would like us because this year is a bit of an unexpected year. Slide number 5. Slide number 5 gives you our NIM at 7.6%, and it tells you that if the MFI book had stayed, forget grow, even if it had stayed at the March levels, my NIM would be 8%. Which means my secured book NIM is actually holding up where it needs to hold up. 8% was my NIM in March. 8% would have been my NIM in December. Forget growth. If I just held the microfinance book flat to March. That is what I want to give you comfort that even though we are turning secured, we have Micro LAP, we have gold loans, we have two-wheelers, we have affordable housing. Our NIMs are very healthy. That is rule number one, or rather point number one. Manish, 3 years, our model was that our NIMs would drop 30 basis points. Sorry, 50 basis points as we turn 80% secured. I want to tell you the point to point. We assume 60% in March 2024 will get to 80%, so 20% change in secured, 50 basis point drop in NIM. CASA will improve from 20% to 30%, so 20 basis points help from CASA. Net NIM negative would have been 30 basis points over 3 years. Yeah. You are not seeing that 30 basis points today. What you are really seeing today is the microfinance book going down from INR 9,800 to INR 8,800. The secured impact is not in. Touch wood, the secured book has done very well and in fact is holding NIM exactly as it was in March. There is no decline in secure NIMs. It is just a decline in unsecure. Okay. Thank you. Thank you very much. Thanks, Manish. The next question is from the line of Soumil Shah from Paras Investments. Please go ahead. Yeah. Hi, sir. Sir, we have guided for a 30% PAT growth for this year, which means we have to almost do around INR 500 crores of profit for next quarter. So how far it is achievable? Of course, we will be taking some DTA benefits in next quarter, but still it's a very tall task. So would you like to revise our guidance? Yes. So listen, I didn't put any more guidance because I think quarter 4, one can calculate it. But let me just step back a bit. See, if you take slide number 3, adjusted PAT. That is at INR 586. Forget DTA completely. You just think that if I didn't have to put accelerated provision, I was in the number that we had guided towards or probably slightly better. The reason I put it up is exactly for that, saying our business model, had there been no need to be net NPA below 1, we certainly would have been at a INR 500 plus number. It would not be exactly what it is because we may not want net NPA to go much higher. But certainly I would have been better than it. Which is what I'm showing, saying, if you step back and think about the franchise ability to produce PAT, it's much higher. I do think that now that the worst is behind us, we had a very strong quarter. We have seen a credit cost decline. I think our acceleration in PBT in Q4 will certainly be higher than what it has been in Q3. Okay. Sir, as per the last quarter, we had INR 740 crores of DTA. Can we know how are we going to use it? I mean, is there any calculation for next 2 years? As per our original calculation, we would have used most of our DTA except the last INR 100 crores when we earned 2027. This year, obviously, we will leave a bit of DTA on the table. We do want to sit down now and we are going to do that as we start again next year that how we use most of our DTA because we have 2 more years to use it up. We have some ideas in our mind and we'll certainly be working on it. We will share it with you all when we come for next year. When we open up next year, when we do fully our March 2025, we will do 2 things for you all and of course for us. One is to make sure that we give you guidance for next year, which is very straightforward. Our guidance on asset 20% we will meet, our guidance on deposit growth of 20% we will meet. If you give us the benefit of adding back accelerated provision, then we are meeting the ROAs, ROEs, et cetera. We will come back with guidance for next year when we do March 2025. We will also share with you how we plan to use up the DTA because we do have a small gap which has come up from this year. Mm-hmm. Sir, just a bookkeeping question. For the current year, I mean, I just wanted to calculate on the PSL certificate. When we become a universal bank, our PSL requirement will be at 40% from 75%. How much additional benefit can we get on the sale of PSL certificate? PSL certificate won't give us much benefit. I will tell you why. The larger PSL book, when you turn from a 75% to 40% will be the surplus MSME micro enterprise, which doesn't get you too much value when you sell it. So maybe 10 basis point, 20 basis point. You can use about INR 30 crore-INR 40 crore at best, not anything more significantly. Because the real money in PSLC is when you sell the SMF, which is Small and Marginal Farmer, which anyway we are surplus and we make use of that PSL, CCA, and even today as an SFB. So one is there is not going to be a big jump in profit from 75% PSL to 40% PSL. I do think that you should, or at least in our heads, we are budgeting a 25 basis point minimum drop in cost of deposit when we turn into a universal bank. And we do expect the velocity of growth of both CASA and deposits to be much better when we drop the word small finance. Those are the two things in our mind that we are contemplating. There are other changes like your capital adequacy may drop, et cetera. But 25 lakhs, 50% of the customer below 25 lakhs will change then. But those we don't think is impactful. I don't think so we are going to cut down on capital adequacy or we are going to do lot of big loans. I think everything else will be the same, but I think for us, the name change will give us certainly a big advantage on both velocity and cost of deposits. Okay. That is it from my side. Thank you, and all the best. Thank you so much. The next question is from the line of Rahul Bhangaria from Lucky Investment Managers. Please go ahead. Thank you so much for taking my question, sir. First question is on your slide number 4, which you have kind of covered before. If you could just give us a sense, the additions during this period have broadly been in the same range as the previous quarter. But the regulatory requirement of provisioning has come down. Just give us a sense of what is the recoveries all about, INR 430 odd crores because your recoveries under other income is also not a very big number. Just to give us a sense of what and where do we expect this INR 400 crore odd number gross NPA addition to kind of go in the future? Right. So two things. One is it also has technical write-off and recoveries both in the INR 434 line. So that's the first important piece. In terms of recoveries out of INR 434, that would be about 100 and? I thought it was around 109. 100 and? 109. 109. Rest is all recoveries. Yeah. The recoveries comes in two lines. One is in the credit cost and second is in the other income. We do anticipate that both will continue as we go into Q4. We would be able to take technical write-off as we do full provisions, and we will continue to get good recoveries, which we have seen an acceleration of in Q3. We do think Q4 will sustain that. We are hoping and we are working towards the addition, which is 437. We should bring down that a bit more in Q4, and we should end up with a closing GNPA number which is flat-ish to lower than where it is right now. Given the nature of. Sorry, please continue, sir. No, after you. Please go ahead. I will add later. Given the way in which the book is kind of evolving towards an 80% secured book, what is your expectation of what the credit cost will look like? Because from what we see in one of the slides where you have given the gross NPA numbers even for your affordable home and the Micro LAP book, they have gone up quarter-on-quarter from Q2 to Q3. What is your expectation generally on that book? Let me take one by one. First is we did say that our credit cost this year will be 1.6%-1.7%. And given where we are in Q3, we will end up with a 1.6%-1.7% cost. And very important is to also look at slide number 20, which gives you a sense of where the challenges, if at all, can appear, where you can see 79% of net NPA is in the secured piece. Which tends to be it is more a timing issue than whether you will get your money back, and LTVs are very low. In our three-year model, which I explained earlier that we have assumed a secure of 80%, we have modeled a 1.5% credit cost. Okay. Right. And sir, last question before I go back to the queue. Any extraordinaries in the current quarter in terms of interest write back or anything like that? I am looking at Abhilash. Nothing that should change. I think the only extraordinary I must say that what we had not anticipated, we tried but couldn't succeed. We were hoping to stabilize the microfinance book in Q3. But somehow the focus on collections continued to be high. We had a good October, but again, November, December, hard work. So our disbursement didn't keep up to what we thought we could do. Other than that, in our working also, we didn't find anything else which looked odd. Right, sir. Thank you for taking my questions and all the best. Thank you. The next question is from the line of Kamal from Investec Capital Services. Please go ahead. Thank you so much, sir. Congrats on the good set of numbers. Firstly, following up on the question of the previous participant, could you highlight the reasons why there was an increase in the GNPA in the secured segments of Micro LAP and affordable housing? Right. So it is just for us, very specifically, two states are showing a bit of extra challenge, and I do not know whether this is industry-wide or Jana specific. One is in the state of Odisha. Second is you are seeing slight tick-up in West Bengal. We have taken actions to address those, and we do believe that we should see this gross NPA certainly getting better than where it is right now. But nothing that, if the question is around are we seeing a spill-over from microfinance into Micro LAP, the answer is no. We do not have too much overlap, and we do not see the Micro LAP responding also like that. These are affordable housing. But we do think there are two geographies where we need to tighten up our shop and our act, and which is what we are focused on doing. Nothing other than that is giving us any discomfort, which is why if even you see quarter on quarter advances growth, which is on page 9, we continue growing affordable housing in Micro LAP at a very healthy clip of quarterly growth of 7% and 5%, or rather 6%. Nothing that would worry us, but a little bit of hard work in two geographies. Okay, got it. Was my understanding correct that the write-off during Q3 is INR 109 crore? That is correct. Abhilash mentioned that. Listen, first I will tell everyone that this whole feeling anxious about what microfinance can do, what does the numbers look like is all behind us. Given a choice, we would certainly like to make sure NPA does remain below one because we want to become a universal bank. We are doing our best to get to the right point and Q3 has been, to our mind, extremely good because the numbers we kept talking about in Q2 saying this is our peak, we have actually shown the numbers. If you take our credit cost, it is actually shown including accelerated provision also, which is very large number. If you take our slide number 4, our credit cost is at 174 versus 210 of last quarter. That 174 is 93 of accelerated provision. Yes, you are right. The technical write-off was 109 and rest were recoveries. What was the number during last quarter? Technical write-off? Let me calculate. Let us calculate. Do you know? Just check. Just give us a minute, we will just check. Okay. Sure. Sir, also if you could just help us out. Abhilash is saying there was no technical write-off. Only this quarter we had technical write-off. Okay. Got it, sir. Also, sir, if you could just help us out, like what is the blended credit cost and ROAs for your secured book and unsecured book? Okay, blended credit cost. Okay, why don't we take the next question while Abhilash quickly calculates that? Okay. This is all from me, sir. It would be great if you could just get back to us on the credit cost and ROA numbers. Thank you so much. Sure. Thank you. The next question is from the line of Darshil Jhaveri from Crown Capital. Please go ahead. Hello. Good evening, sir. Thank you so much for taking my question. Firstly, congratulations on the great set of results. Just wanted to know with regards to our PAT growth, on a reported basis, we will not be able to do a 30% growth. So what kind of PAT can we expect next quarter? It will be similar on what we have reported, like INR 110 crore, INR 111 crore? No, certainly it should be better. Oh. For simple reason, whatever asset we have added this quarter will give us extra income next quarter. We certainly would like to grow and at least stabilize our unsecured book. So that will also add to the profits. We are not expecting any higher credit cost for sure, so I think that should also be positive. You also know that Q4 is anyway good for all banks. It is the best quarter in every year, which means a lot of disbursement goes up and certainly leads to a lot of fee income. So, if I just use those three parameters of bigger balance sheet going into Q4, unsecured hopefully stabilizing, and higher disbursement in Q4, I do expect my cost of deposit to go down in Q4. And that I can see happening because we have repriced our CASA. We have also repriced our deposits. I would anticipate a much higher PBT impact, and I would certainly like to see net NPA below one and gross NPA below three as I finish the quarter. I can say that with great comfort because we are on the 31st of January, and we are really having clear view of what we are expecting. Fair enough, sir. That is very helpful, sir. The accelerated provisions, those will maybe end in FY 2026, right? How long will we continue these accelerated provisions? Because they are dampening our book quite a lot. Just wanted to, like, after we apply for the universal banking license, will it continue in Q1 also or how would it go through, sir? I think the unwinding will happen over the next three or four quarters. It will not happen in abrupt matches. What will happen is the addition to the accelerated provisions will diminish as we go into next year. Certainly, because right now the total corpus of accelerated provision is INR 208 crores. Let us say we take another INR 60, INR 70, INR 80 crores in quarter four. So it will be closer to like INR 275 to INR 280 crores of accelerated provision we are carrying into next year. Obviously we will use up those provisions, but certainly I do not see why we should add more to them. Remember, as your unsecured book stabilizes, the need for provisioning anyway comes down. Secured does not take too much provision and like I said, the small blips in secured will get sorted out. I do see that the carry of actual provision, which means my PAT has reduced this year, it will not happen next year. No. Okay. And to make sure that what that number is, I put that clearly in slide number 1 so that there is clarity in everybody's mind on what to expect with our franchise. Correct, sir. That's how I look. Yeah. Any kind of guidance that you would like to give for FY 2026 right now? So listen, asset growth 20%, liability growth 100%, 20%. I mean, that we said for this year, we will achieve it. We will certainly put up a similar guidance for next year. I do not think so that will worry us. I think what we want to give around PAT and ROAs, we just want to take time to finish this year and see the impact of how the release of actual provision happens, et cetera. Just be very clear about it and then we will certainly come back to you when we declare the March results. Okay. What I can confirm to you right now is asset and liability growth will continue. Secured book growth will continue. Okay. We will certainly like to grow our unsecured book also. We will not like to see a decline in it. So all three are going to happen. We will try and grow CASA even harder. And like you have seen, we have grown the CASA cost down. That strategy won't change. So I think these are some of the givens you should assume that Jana has as a strategy, and that won't change. Correct. Fair enough, sir. That's it from my side. So all the best. Thank you so much. Thank you. The next question is from the line of Shailesh L. Kanani from Centrum Broking. Please go ahead. Good evening, sir, and thanks for the opportunity. Sir, can you point out any strategy which we have deployed in the third quarter, means apart from the collection efficiency or collection efforts, because our performance seems to be very well vis-à-vis. Shailesh, very good question. Is- Sorry. Did you finish your question? Sorry. You are breaking the question. Sorry. Is this better? You want me to repeat the question? No, I got it. Yes, I am repeating it. Yeah. You are asking why is our performance better? Did we apply any special strategy in Q3, right? And any states you would like to call out where our performance has kind of sequentially improved dramatically or anything you would like to call out, any states which are performing well. Right. I just want to take you and everybody else on this call to a slide, which is slide number 11. First, out of INR 8,899 crores total unsecured book, INR 5,124 is individual loans. I do not think we will get too many other MFIs or SFBs which are high proportion of individual loans. We have been doing individual loans because we were an urban microfinance, so we moved to individual loans way back in 2018. So one thing about individual loans is they are a lot more urban in nature, and you can see we have given a breakup where our agri and non-agri is. But we give individual loans to people who have finished one cycle of group loan. And number 2, often underwriter visits them, and this is a visit by an underwriter of credit to figure out what the cash flows are before we give them the loan, because typically the entry loans are higher. So I think one of the reasons our book is better is 2. One, it is individual loans. We have done underwriting. Two, individual loans collection behavior is far better now than group because in individual loans, there is no ganging up of people saying, "Okay, let us get together and not pay," or, "Let us put up a barricade outside the village saying no MFIs are allowed." That all doesn't happen in individual loans. There is no ring leader here. There is a customer and there is a bank. Secondly, the customer has been through a credit cycle, knows what credit is, and third, my underwriter has visited him. I think we were giving the market this clear indication even in Q2. But we didn't have the numbers to back it up because Q2 did see an increase. And we kept saying that, listen, at Q2 end, we have seen the worst of it. The start point of evaluating us versus what will happen in the industry should start from this page. Seeing what is their book made up of. INR 5,124 is individual loans. INR 1,643 is BC, where we have service guarantees, which means if I don't get my monies collected by them and it turns NPA, they are responsible in a financial sense. Right? So if you add these 2, you can see why my credit cost should be lower, both because we had service guarantees from BCs, which roughly is 20% of my book. Individual loans is INR 5,124 of INR 8,000 crores, which is roughly 55% to 78% of book is very different from a regular MFI or an SFB, I would think, and which is why you would expect differential performance. We are very convinced we will continue this strategy. Yes, we had a few hiccups with three BCs. We know what to do differently now. Remember, out of the 17 BCs, 14 were very good. The three we have taught as lesson, we will fix it and then we will move on. Sir, just to add up. Sorry to harp on this. I was looking for sequential performance. Individual share was high for us even in second quarter, right? Maybe a few blips here and there, but even in second quarter, we had more than 50% share in individual lending. Just wanted to know if we have done, because individual book per se has seen a marked improvement Q-on-Q. I was just wondering if something has happened over here. One is, some of it would be technical write-off because you heard Abhilash that we have not done technical write-off in Q2, we have done in Q3. Some of the GNPA drop has got to do with taking technical write-off. You are right, it looks better than Q2. I think one of the reasons would certainly be the tech write-off. If you step back and think, listen, even if you take Q2 numbers, they were around 4% odd for individual loans. Right. I think individual loans will show across MFIs and SFBs and banks better performance than group loans. I think, again, unless somebody has done it in a very odd way, if you have done a credit decision, these are customers who are credit experienced. I do think we will get a better experience in IL than we will get in group loans. I do think the more the industry will turn towards IL as an answer because barriers are broken, there is no ring-fence measures around this, and you will find that customer behavior with the bank or a finance institution, when it is one-on-one, will end up being better. Fair enough, sir. Any shout-out for any state in terms of performance? Where are we working very hard, I am looking at Raman now. We were working very hard in Bihar. Yep. We have certainly a challenge in pockets of U.P., but not all over. I would not call out the state in general. There are a few districts where we certainly are seeing stress in Odisha, and that we can see both in MFI and even our housing book. There is a general level of challenge in Odisha. I think other than three small pockets of West Bengal, nothing significant, but we have never had big part of our exposure there. That is what I would call out. Fair enough, sir. That is helpful. Sir, my second question was with respect to BC book. BC book has again seen a noticeable decline sequential basis and GNPA is also Sorry? The big reason again is, see, BC book first is improving. That is the rule number one. Some of it is maybe any tech write-offs taken here could be the reason. Yes, if you should take away that and when you look at the credit cost, the one assumption you should certainly make sure is there is that the unsecured achieved the worst, including the BC book. Okay. Sir, just last question from my side. In our individual lending and GLG customers, what other products we would have in terms of overlap apart from the unsecured loan? Do we have an overlap with affordable housing or any other product for our customers? Here is what I know you must know. We have 3,000 people on street who do affordable housing Micro LAP. These 3,000 people are reporting to a business manager who runs affordable housing Micro LAP business. Most of them, or rather I would say all of them of either banks or NBFC, we do housing or LAP. There is no overlap of a salesforce between microfinance and affordable housing or Micro LAP. That's rule number one. The credit underwriting of affordable housing and Micro LAP is done by a separate set of underwriters, which has a scorecard and physical visits, valuation legal that we would follow. I also want to clarify that our Micro LAP is not moral obligation by customer. It is SARFAESI-able property. Even though it is INR 6.5 lakhs, we don't have a product which says, "Leave the deposit of power of attorney-based property transaction and we'll give you a loan." Are there property where it's a legal lawyer has signed yes, and we can do SARFAESI action on it. So that's mine. I want to clarify this because if there is like how much is the impact of microfinance on this, in our book should not be high. Are there any microfinance customers in affordable housing and Micro LAP? Yes, because there are certainly lot of microfinance who are good, which would be about 5% or 6% at best of the affordable housing Micro LAP book. We have tested their performance, and the good news is that our microfinance micro LAP customers who are from a microfinance background, sorry, affordable housing micro LAP customers who are from the microfinance background, their performance is very good, but they are not a large chunk. Predominantly, there would be only one unsecured product for this customer, right? Be it individual or GLG. We only have one unsecured in the bank only. We have no other unsecured business only. Our entire bank only does microfinance where you can get a GLG. If you are a GLG graduate, you get an individual loan. There is no other unsecured product only in the bank. Okay. Fair enough, sir. Thanks a lot, and best of luck, sir. Thank you, Shailesh. Thank you. Participants, please limit your questions to two per participant. The next question is from the line of Sarvesh Gupta from Maximal Capital Private Limited. Please go ahead. Good evening, sir. Thank you for giving me the opportunity and congratulations on a good set of numbers. Sir, most of the questions have been answered. Just one thing, if you can give some more clarity. Hello? Yeah, go ahead please. Sorry. Yeah. This 2.3% adjusted ROA that we have earned for 9M. Now, once the tax benefits go away, this can also come down by around 25%. Then you explained that there can be a 30 basis point impact due to us reaching 80% sort of a secured book. Net, where do we see maybe in 2, 3 years, where do we see the ROA and ROE stabilizing post our tax benefits are also over? Yeah. That's a good question. At 3 years later, and you're rightly pointed out NIM will be a compression of 30 bps. It will be 80% secured. What we have not put in our numbers 3 years from now is we will also have a credit guarantee on unsecured. We are going to model that now. Within that past model that we had done, where we had turned 80% secured with a drop of NIM, our ROA would be 1.8%-2% range and ROE between 16%-17%. That is a steady state model that we had imagined would happen. Also, I must add that CASA had become 30%. There were three variables. 80% secured, CASA at 30%, drop in NIM of 30 bps, then ROA would be 1.8%-2%, cost income would be around 53% and ROE would be 16%-17%. The one variable that I would like to now add is now I have a credit guarantee program. It does have a cost, but it also has an upside to us if something does go wrong. We'll just put that model in, and when we see you again after March results, we'll bring that forward to all of you. I do think that it's important for us also to do it, but I must admit that we've been too busy around trying to bring around this stability and turnaround in the credit cost. Now that we have a bit more breathing space, we will certainly complete that and share with you folks when we bring the March results. Okay. On the CASA cost, this time in May you had reduced it in October, and I believe, we pay a decent sort of a savings rate beyond 5 and 10 lakh. As we grow, do we sort of expect to be a top-tier sort of a savings bank interest rate player, or do we have intention to sort of reduce it and given that now this time you have reduced, so your CASA has also dropped, so how do we look at this entire scenario? If you can throw some color on that. Yeah. What we felt was at the top end when you are offering a 7.8 or some other extreme CASA rate, you tend to get very large tickets. Fundamentally, we looked at it and said, "Listen, this does help us grow our CASA, but is it the kind of CASA that we want to build ourselves up?" Because once you start going that route, then you get more and more of that because that is very easy to get that. You're only paying money and getting good CASA. So we said, "Okay, at the upper end, let's kind of cap it to a point." It is not that we're going to reduce our price and become uncompetitive, but that extreme end, we don't want. There are banks which we know where our CASA went and which banks actually got it away and what price. But we think that is too extreme a price. Our buy is say, listen, there is more hard work. We'll open branches. If you see our presentation, there is a lot of segmental offers we have started. We are seeing very good traction for our micro. At some point, we think that our CASA pricing has to be very competitive, but there is some competition that we did not want to play, and which is why we cut it off. Thank you, sir, and all the best. Yeah. I put this slide again showing cost decline because there is a CASA decline in the industry, so people may think that Jana's CASA is down like the rest of the industry or in part, et cetera. I just want to make sure that, listen, our CASA decline is purely on a price drop. We have recovered some of the money gone out. Recovered means the wholesale money or wholesale CASA is gone and retail CASA has come in. But we have not really reached the point of matching it up. We are going to work hard and get past that. Thank you, sir. Yeah. Sorry. Abhilash has an update for one of the previous questions. Komal had asked- Komal had asked a question which I will get back to you by calculating it. On the credit cost between segments for Q3. Secured, if I remove the accelerated portion, the regulatory portion of 23 basis points, unsecured 66 basis points, that is our credit cost for Q3. So that one answer was pending, so that I have given here. Thank you. The next question is from the line of Chintan Shah from ICICI Securities. Please go ahead. Yeah. Thank you for the opportunity. So just firstly on the TCR. So sir, in this quarter we have indexed our secured TCR to 48% from 29% in the previous quarter. So probably, what could be the reason for the same? So is there any change in the PD assumptions or LGD assumptions or how is it here? Chintan, hi. Chintan, very simple. You see, listen, I have no other place. Whatever I provision in unsecured, I am taking a technical write-off. Then I make it secured book. Now if I have to keep net NPA below one, I have no other way to increase TCR there. Okay. So probably just to keep net NPA below one, this has been done. Yeah, of course. But you see, when we started the year, we had 18%, and some of us suggested that why don't we make it 20%-30% because that is what the industry is. So we made it 28% last time. Now we have no other room. We have to make it 48%. I worry that when we put the next money in this quarter to keep the NPA below one, this may become 58% or 68% also. But yeah, that's the way it's going to go now. Sure. I do not know if I missed this, but have you mentioned the microfinance slippages for the quarter, which was around INR 230 crore in the last quarter? No, Abhilash is giving the number. Just give me a minute. Sure. Also, one more number. I think, did we mention the collection numbers on the month-wise for the last three months, October, November, December? Any numbers there or could you please provide? Also on the January, how has been the collection trend so far for the unsecured portfolio specifically? Even on the secured front, are we seeing any spikes or any steep decline in the collection efficiency? One is on the secured side, I mentioned a few geographies where we can see- Yeah uptick, which I think is more to do with us than any industry in general, where we have to tighten up both our collection effort and some of the trade parameters. I think that is one. Nothing stops us from growing. We continue our growth path. Nothing is alarming us, but just some work to be done and we fix it. On the unsecured side, I do think January, February, and March, between the 30th of the month or 31st of the month, we will be running hard to reach the 99%. I do not think so anything has got streamlined that we will reach 99%, or 98.5%, which we have been doing, by the 20th or 22nd. I do not think so that stability is there, either certainly in the way customers are responding and how the industry is looking at things. I think that hard work will continue. Only thing now I can see is people are more confident of it than they were in the previous quarter, which is why I feel the disbursements will pick up even more and the book will flatten out. But we do think that we are very, very attentive on microfinance still. The only good news for us is given the shape of our book, we have not had the damage that one would have anticipated, and which is what you all can see in these Q3 results. But yes, nothing on secured which should I am being very clear here. There is nothing there that is above and some impact. It is I think just two geographies actually, which is challenging us. Sure. And sir, we have already made INR 208 crores of accelerated provision so far, and probably another INR 60, 70 as sir mentioned, would be done in Q4. So roughly INR 300 crores of baggage. What will make us reverse this accelerated provisions in Q4? What could be that trigger for the reversal of these provisions? It will be happening over the next year rather than first quarter of next year. Okay. And will be driven by- Yeah, sorry. So very simply put, there is a need to keep net NPA below 1. Okay. To keep the net NPA below 1 when we have slippages, there's only one way, is to keep provisioning for it. So I do think as the slippages are getting more and more normalized, we will need less and less provisioning. When some of these customers, after some point, will need 100% provisioning, we will not need to put any more provision because we've already provisioned for it. Certainly on the unsecured side, whatever this INR 208 crores goes to unsecured, that we fully use them. Either we'll collect the money or we'll use it for 100% provisioning. Obviously, our need for provisioning needs to be lower. But all depends on, so the Q3 provisioning will probably unwind around Q2, Q3 next year. What we have provisioned about, I think, around INR 60 crores in Q1, that is probably what will be available in Q1 next year. It is that kind of phasing will happen. Important, Chintan, is we did give a set of numbers that one should expect from the banks. I do think that if you add the actual provision, a lot of it is visible. When we do forward numbers, if you say the bank doesn't have to put an actual provision, it already has INR 200 crores corpus or surplus. What will the numbers look like? It makes life very easy for you, and to be very upfront about it, I put it in slide number 3 saying, assuming we don't do any accelerated provision, what would the bank look like? It will give a better sense of what next year will look like. Sure. Probably it could be better if there is a reversal as well on the credit cost front. Of course. No, listen. Chintan, just give it till March. If I made a statement here, which I wasn't very clear about, when I sit with you with March results, I will give you a clear sense of when the reversal will happen. We cannot continue with beyond a point. But the speed of reversal and which quarters will it come, just give me an opportunity to do it right. One thing you should know for sure is when we finish this year, we are right now PAT around INR 360 odd crores. We have one more quarter to go. You can take any reasonable addition to that, which is better than Q3. So you know what PAT will finish with. Plus, we will carry about INR 300 crores of accelerated provision. You can do a fair estimate for next year now, which means that we will not have accelerated provision, and plus some of this provision will get released, if not all of it. So you can take a fair guess of what the number will end up. Sure. And just lastly on. Yeah, sorry. No, I said from our side, that proper guidance we will give you when we meet with March results. Sure, sir. And sir, just lastly on the credit guarantee scheme, when is the recovery? Any timelines on the recovery? When can we expect that and what could be the quantum-wise? Any thoughts there? No. I am hoping, Chintan, there is no recovery because if we have just started guaranteeing now, if they turn NPA, we will have to request the institution to give us the money. The fresh disbursement is guaranteed. Until it becomes NPA, I cannot make any request for the money. I am hoping I never go back to them for money. But whatever we will see will probably happen next year if some of these do turn NPA. I think what you will see, Chintan, is next few quarters we will keep adding to our CGTMSE and CGFMU guarantee programs so that any event risk on unsecured will not disturb us too much. It will of course disturb us a bit, but it will be very marginal. What we have seen this year, I do not want to see it any other year. It is more of a kind of an insurance taken against the portfolio, right? 100%. Given that we have seen no external event, yet we saw stress in the book, right? That means there is possibility of future stress without an event. Sure. Understood. Our takeaway for all our investors has been a persistent, consistent book where we are predictable. We got disturbed now, we have taken our medicine, and we want to make sure that we do not get disturbed in future. There is enough and more business to do. Our books are performing well. We are in 180 cities. We have got 24,000 people. Our products are all seeing COVID in their existence. We are very comfortable with the growth and what we are doing. I want to take away one amount of event risk. I thought BC was one opportunity, and to be fair, BC has worked well, the three have not. I do want to also add up to the CGTMSE, CGFMU. I also must tell you that even my BC book, I am also guaranteeing that while I am doing my own book also. We are doing the entire unsecured book, both BC and non-BC, so that even for my BC, there is much more safety in the future if something odd happens, which none of us can see. Sure, sir. Just lastly, on the MFI slippages number, if Abhilash has it handy. 230. Yeah. 230? 230. Yeah. Okay, so that is flat on a quarter-over-quarter basis, right? Yeah. Sure. I think that is it from my side. Thank you. Thanks. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead. Hi, sir. Good evening. Sir, a few data keeping questions. Firstly, how do you account for the FLDG on the BC book in MFI? Simple. It goes to NPA. There is a deposit which is available under the service guarantee program, and we take the deposit and we apply it. What happens is my net NPA, my trade cost goes down. Two things, gross NPA goes up. That I can't change. Net NPA, because I take the money and apply it, the net NPA remains stable, which means remains lower, and my credit cost also doesn't take that into account. Roughly, we would have taken about 110 odd crores out of the various deposits available with us during the quarter. That comes as a provision reversal then. No provision made at all. Provision made, no? No reversal required. The moment it goes to NPA, I apply the deposit. Okay. Secondly, can you share the SMA book in MFI as on December and September? If you see what is sitting in the I would use this book. We haven't done the SMA breakup, but we did want to give you a sense of what is flowing in, which is what we have done in slide number 4, where our closing gross NPA is about INR 756. Right? Give me a second here. Yeah. Please, slide number 20. Slide number 20 will tell you that out of the INR 758 crore, INR 382 is secured, INR 225 unsecured, and INR 161 is BC. Mostly the unsecured and the BC book have got a PCR of 86% and 98%, so no trouble coming from here. The secured book has, like Chintan asked earlier, 46% PCR. Really that is a high PCR mainly to keep net NPA below 1. But LTV is 46%, so this should not worry us. The real will be what happens to then what is the need for provisioning in Q4. It will be only fresh slippages which come in from unsecured. Because I think secured we can do enough and more of that from the action we have taken in Q3. That should be the only number that you should put in your model. Okay, sir. Lastly, can you share the microfinance disbursements in this quarter and the previous one? Yes, I can. Abhilash has it ready. He will give in a second. YOY also, if possible. Yeah. Thanks. Those are all the questions I had. Thank you. I can tell you year-over-year is negative, about 90 odd percent. But I will just give you the exact number. While he is giving the numbers, listen, while we are doing CGTMSE and CGFMU, one of the risk mitigation was also reducing the BC approach, which is why I said 910 odd crores that we have reduced so much right cost. It is result of us giving higher income to the BC for all these years. In a stress moment, we did think that they would not have a challenge, but if they had a challenge, they would have to account for it themselves, which they have done. Got it, clear. INR 1,800 is our disbursement in microfinance for this quarter against the INR 1,338 of last quarter in Q3. Yeah. Abhilash, can you come again please? I could not hear you. 1,800 is Q3, 1,338 is Q2. Q2 was 1,338 and- 1809. 1,809. But what was it in Q3 of last year? Q3 of last year? 1,970. 1970. Yeah. Sir, in the write-offs which you had this quarter of INR 109 crores, that would be completely from MFI? Correct. Which is why you should kind of use that to figure out why we did not grow even though we did 18 M crores. Got it, sir. Okay, thank you. Yeah. Thank you. The next question is from the line of Sagar Shah from Spark PWM. Please go ahead. Good evening, sir. Thank you for the opportunity and congratulations for at least a stable set of numbers in this kind of environment. Actually, I had a couple of questions. The first one was related to the data keeping question. What were the interest reversals in this quarter, especially in the MFI segment? Around 50 crore of interest reversals, which happened year to date, actually. That is year to date. Okay, correct. For the quarter it is around INR 18 crore. For the quarter it was INR 18 crores. Hello? Sorry. Yeah. INR 18 crores for the quarter. Okay. INR 18 crores for the quarter in case of MFI segment, right? Right. Okay, sure. Now, second was related to the slippage ratio. You already highlighted the number before that in this quarter, actually our slippage ratio still it is relatively little high at around 6%. Was it INR 230 crores you highlighted was predominantly based on for MFI business. The second half was totally related to the secured segment. Can you highlight that which of the secured segments the slippage ratio was relatively higher? If you look at our gross NPA and net NPA, this is the slide on page 9. You get the Micro LAP, like I mentioned, 2, 3 geographies which are giving us a bit of a challenge. You have seen gross NPA increase in Micro LAP and slightly in affordable housing. They are just 2 points. MSME loans are very stable and in fact, two-wheeler has dropped back. Gold loans anyway is technical. A bit of Micro LAP, which has seen a slippage and specifically in the 3 geographies and not the book in general across the country. Okay. Micro LAP and that is completely secured business, right? The Micro LAP business. Yes. I specified earlier, this is entirely SARFAESI-able, SARFAESI applicable property business. With a 33% LTV. With an LTV, which we have given, as you can see on page 9, last column, it is 32.8%, which is 33%. It is a timing issue. But we are not seeing anything where it is kind of a few geographies we could do a bit better, which we are now just tightening. That is about it. Okay, so there is no major reason to worry or there is no major overlap with MFI. It is not related too much to MFI business. I have to be very clear that, listen, which is why if you see quarter on quarter with 5.8%, I would have retracted back or slowed down the growth if I find that, listen, I am entering an area where I am uncomfortable with. We do not have the discomfort. And I want to be extremely easy with this, that if we see sign of trouble, we would be running away from it, and I would have already announced it to you folks that, "Listen, here is where I can see a problem coming." I do not see a problem coming. It is one or two geographies. We will fix it. Okay. Sure, sir. Sir, and lastly on the PCR. The PCR for the secured segments. What is the PCR for the secured segments as on this Q3 FY 2025? Slide number 20, 48.3% on secured. Okay. Sure, sir. It gives you two things. It gives you cell 50 as gross NPA breaker. It tells you 79% of net NPA is all secured. So really not much damage here, only worry about unsecured slippage in Q4. That is all that could be hitting us right first. If you minus your recoveries, then I think we are in good shape anyway, and we have large amount of PCR. But like I mentioned earlier to Chintan, that most of this PCR unwinding will happen next year. Yeah. And just on this, if I can squeeze on the last slide. You made a statement that we have seen the bottom as far as the microfinance business is concerned. So by Q4, can we expect a sequential uptick in disbursements in this particular MFI segment? 100%. Because anyway Q4 is always strong. Q4 you know that, right? Exactly. That is not what worries us. Can I grow enough that my book will become, has no negative growth or become positive? That is my big ask to myself. And Sudhir, who runs our business, sitting right in front of me, our work is there. But listen, here is the classical piece. If you source group loans, your rejection rate is 70%-80% now, batches. So we don't want to grow and end up with problems also. So we are very hard on what we are growing. So for example, my existing customer, if he's not in a metro city and has more than INR 50,000 outstanding balance with any MFI, I am not giving him money. Okay. By saying this, I'm only telling you that, listen, I can grow much faster, but I don't want to grow when I'm not certain that this is going to turn out right credit. So I'm saying this again, non-metro city, more than INR 50,000 of his exposure, good customer of Jana, he will not get a repeat loan. Because we are not ready now till the industry is pretty much sorted out, which I don't think we are sorted out right now. So we have put stringent conditions. We will continue with those. If we are slightly more challenged on growth, I would rather live with that, but I don't want to add up till we are very clear of what we are seeing in the front. This is in spite of having a credit guarantee, because my idea of credit guarantee is to be used in an event risk, not in taking more risk and saying, okay, whatever comes on top will be covered. That is not our bias. Okay. Take your point, sir. Thank you so much, and all the best for the next quarter. Thank you. Thank you. The next question is from the line of Anant Mundra from MyTemple Capital. Please go ahead. Hello. Good evening. Thank you for the opportunity. Sir, we are at a slightly higher LCR. Just wanted to understand why are we carrying higher liquidity and when do we expect this to normalize? I am guessing this will have some impact on our NIMs as well. There could be some uptick in NIMs. Is that understanding correct? You are 100% correct. Our LCR is very high. We did try to bring it down. We made some progress in Q2. We are back in Q3. See, what we tend to do is when we do bulk deposit now, we tend to ask all the bulk depositors to take 5, 10 basis point extra, but make it non-callable. Somehow our sales force is very comfortable with that and it gives us strength in whatever bulk we take, yeah. We have launched a few products which would increase our retail deposit and reduce bulk in general. Once that happens, the LCR will also come down. The way we think is bulk has a reason why it is called bulk. The best thing is when you take bulk, make it non-callable. Once you make it non-callable, then you can sleep easy. We have also given the breakup of how much is one year plus. We are roughly around 70% of all bulk deposits more than one year also. We are conscious of that. We do know that we will save some money if we get it right and we will attempt to do that in quarter four. Got it. Sir, we have done fairly well as compared to our peers when it comes to managing this MFI cycle. What really is the next challenge that you are seeing in terms of meeting your long-term guidance of having a steady state ROE of 1.8%-2%? Is it the mobilization of CASA where you have to get to 30%? There has been some increase in the NPA on the secured side, so is that also bothering you? What is really bothering you now, given that this cycle is behind and you are past the peak? So listen, affordable housing, Micro LAP, MSME, I think we are doing fine. In MSME, we are incrementally seeing sales invoice and purchase invoice discounting. So our focus is building credit structure, early warning around that. I think that's rule number one. I think on Micro LAP and affordable housing, we are just in 180 cities. Just making the operation run well. I just mentioned we have 3,000 people. So always it is like you have to keep your hand on the machine all the time. You can't assume everything is fine. I think just making sure we are executing well is all that is required. It doesn't bother me and we are one of the players who have a microfinance business. We have a Micro LAP. We have access to credit bureau. We know what the overlaps are, who's doing what, not just with us. I know my microfinance customer who have taken Micro LAP from somebody else, how they're behaving, who have taken from me, how they're behaving. That is not our real worry. What I would really like to do is first get the cost-income back because that's been our strength and we've got a bit of a hiccup now. So I want to get cost-income right and that will come from unsecured going back to its 10,000 levels. If that is slow, then I think we have to work harder on the secured side so that the cost income becomes better. I think that is one of my focus areas. Then product diversification in MSME is our second area. I don't think we will take the eye off the ball on collections, whether MFI or non-MFI because I think that is core in this environment. I think that won't change. On CASA, we have segmental offers and we have even shown the segmental offers in one of the slides. It is just making sure that we really focus on retail growth there. I think there is a bit of hard work. But we'll continue doing that and we expect that to continue. So those would be our real top areas, CASA growth, MSME into sales invoice, purchase invoice, making sure that we keep our hand on execution in secure. MFI collection doesn't get easy ever. Finally, is making sure that we get the gross income back on track because that is something which we think cost is a certainty, revenue is a hope, so cost has to come right. Got it. Thank you for the detailed answer. Just one final question. Could you briefly just explain the economics of CGTMSE and CGFMU? Yeah. CGFMU cost is 1% of the disbursed amount for one year. Next year we pay on whatever is the balance outstanding. Then the first 3% of the gross NPA. Let's say INR 100 you guarantee, INR 5 goes into NPA. 3% of INR 5, which will be INR 0.15, is your cost. After that, 75% of the balance amount will be paid by the CGFMU. They could change your cost of guarantee if your delinquency is whatever it is. That is the economics. I think beyond a certain point, very early, about 1%, 1.5%, you are fine. You start getting some money back. On CGTMSE, it is 0.3% is the cost. It is only for micro enterprise, so you need to have Udyam registration. It has to be a small business. You get money back once it goes NPA. Only thing is, I think the current condition they have applied is you get money back equal to 2x of the premium you pay for that year. Unless you do not have a real bad year, then most of your money of NPAs on the CGTMSE book will come back, and that would be our bias. All right. This is not on a pool, this is on each specific loan that you give out? Yeah. There is a proper format where you get in all the details, you put the Aadhaar number, you put the Udyam number, you write all the details, everything has to match. Once that is done, you upload to the system, the system accepts it, then you pay the guarantee fee, and then it becomes guaranteed. So it is a very formalized and very automated process, and there is enough checks and balances to make sure that these are done rightly. I think it is very well organized by the National Credit Guarantee Trustee Company. Got it. Thank you, sir. That's it from my end. Thank you. Thank you. Due to interest of time, this will be our last question. It's on the line of Vikram Subramanian from Marshall Wace. Please go ahead. Hi. Thanks for taking my question and glad to see the current ongoing stress environment being managed very well, and also glad to note that credit quality peak stress is behind. Just a couple of questions as more of follow-up on a couple of other participants before. Can you give a sense of how the SMA has moved between September and December, and how the collection efficiencies have moved in the past 4 months? This is majorly to get a gauge of how the on-ground realities are, because even though you are calling out peak stress behind, slippages still seem to be flat quarter-over-quarter and you also call out that the overall environment still remains challenging. Just to get a sense of more forward flows. If we can get an idea of the SMAs or the collection efficiency, that will give a better picture for us. One is collection efficiency unsecured at 98.6%, 98.5% consistent across October, November, December. Our push to get to 99% was not very successful and some reason or other always get pushed back, which is why I keep saying that it's still going to be focus from our side on microfinance because we would like to see a 99% plus. That's reason number one. Also, I said that microfinance, Vikram, normally we reach a 99% around 22nd, 20. Now we are fighting to the 30, 31st. I don't see that changing much, so I suspect we'll be a bit more relaxed in Q1 next year rather than Q4 this year. So hard yards will continue. We are geared up for that. We have put the collectors in place. We should be there. Our SMA has reduced in Q3 over Q2. You want to add something there? It has reduced. Yeah. Yeah, it has reduced. I don't see a challenge. Also, recoveries are much better in Q3 versus Q2 and Q1. Which means we are getting better traction than we got earlier. It also means that the collection source is much more settled now because once you start hiring people, by the time they understand the system and they start reaching out to customers, finding out where they live, we of course have geo-tagging for everybody, so we know exactly how to find our customers. It takes the time to reach the settlement. I think that settling period is over. Why I said the worst is behind us, and I said that in the last quarterly meeting. It was the shape of the bucket curve. If you take secured book also, if my book was not properly backed, I had a different version I would have said. Let's say my book was vehicle finance. It could have another future how it would look. Similarly, MFI, if I had no group loans, I would have probably taken another quarter, I feel. Because I think that group loan is not so settled, I feel, from whatever I gathered from our MFI business. That's what I think fortunately Q3 turned out right. Like I said, the only thing that I was hoping but I couldn't achieve in Q3 was to really stabilize my unsecured book where it was at the end of September. I thought we will make it happen, but somehow our field force hadn't got the confidence to do more disbursements. We're continuing working on that, and once we get that right, I think then most of the issues are well settled. I know it's a bit of a longish thing, but I believe that, Vikram, it gives you a good sense of what we're expecting before next year. No, this is very helpful. Thanks. Thanks for that detailed explanation. Just to follow up on that just so I'm clear. Our book mix and our recovery efforts and potential give us confidence to give out this comment that great quality peak is behind us. It's more to do with how we have been dealing with and how our book has progressed. Am I right in assuming that? Yeah, absolutely. That peak is not a hope but a reality if you take actual credit cost, which is what we have given in slide number 4. It is lower in Q3. If you take the slide number 4, even assuming a higher accelerated provision, my total credit cost, INR 174 crores. It is lower than INR 210 crores of last quarter. It is a perfect INR 196 goes up to INR 210 come down to INR 174. INR 174 is 93 of accelerated provision, which is higher than the 61 of last quarter. You should see in the slide number 4. I just want to give not just how I feel, but these are actual numbers which tell you that listen behind us. Now if my net NPA is 0.91%, suppose I had made it 0.95%, if that was our chosen path, then yes, PBT would be higher. Our PAT would have been higher by another INR 15, 20 crores. I have argued with him next INR 15, 20 crores we can always, as things are more exuberant we can show them. Right now let's be more conservative. Got it. This is very clear. Thanks a lot for the detailed explanation. Thank you. Thank you. Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to the management for their closing comments. Thank you. Listen, in closing, I just want all of us to know that our bias and focus towards secured has really helped us a lot. It only increases our conviction that we should get to 80% secured. Secondly, our focus on making sure that MFI is not just operational this business, but has credit risk and should be treated as such, which is where the whole genesis of individual loans really began. I think we are also in our mind very clear it was the right answer, and we will sustain on that path. I think that will not change. I think thirdly, we are very committed on making sure that we deliver a strong cost income, and we are working very hard for that because we do believe that certainty which was our strength remains our strength. Finally, I must say that we took a hard yard on pricing on CASA because I did feel that as we continued growing, at some point we would have to make this call, so better earlier than later. I know that our branch team led by Srini is committed to making sure that CASA does reach its growth path. We are investing behind it. We are very confident that Q4 will see a much better CASA number than what we saw in Q3. I think other than that, we would certainly like to apply for universal banking license. I think the advantage it will give us with our employees, with our customers, with our deposit rates, with our deposit velocity, will be tremendous. We certainly would like to keep the net NPA below 1%, gross NPA below 3% and put up a good case to the regulators to find us suitable to get the license. More for you folks when we come with the March results. Thank you for your support and belief in this tough environment. Thank you. On behalf of Investec Capital Services India Private Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.

Data Source: Quartr Last updated: Jan 21, 2025

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